Poker Face

Ever consider playing poker blindfolded?

That’s essentially how trading agricultural goods with China works.

The country of over 1.3 billion people has been doing its best to hold its ag industry cards close to its chest.

Consider the handling of its rebound from African Swine Fever.

Nine months ago China stated they were well down the road to recovery, and the country’s pork production was buzzing right along again. Then, 2020 saw China import more pork than ever before.

Sounds like someone was bluffing.

Some economists argue that’s exactly what was going on. Theories suggest China might have withheld the true state of their swine herd so they could purchase almost a billion bushels of corn at lower prices.

But signs do point to their swine herd actually growing again. That giant pile of corn they’ve been snapping up in recent weeks has to be going somewhere. The country’s been importing so much that ships have had to wait up to a month to dock and unload.

Worth noting: The USDA has estimated that China will import 26 million metric tons of corn this year, but some in the industry think that number will continue to grow.

Time will tell because China probably won’t.

China’s Corn Obsession

China appears to be using the Pac-Man strategy for buying corn. It’s pretty simple… Gobble up everything in sight.

By the numbers:

  • In the 2020-2021 marketing year (ends on Aug. 31), China has agreed to purchase 22.8 million tonnes of U.S. corn. 56% of that had already been shipped by May 13.
  • New crop corn is where things have really heated up. China has already purchased 10.7 million tonnes of corn for the 2021-22 marketing year, which doesn’t even start until September 1.
  • Of that 10.7 million, 8.2 million tonnes of corn has been booked since May 10, marking a historic pace of U.S. export sales.

China is typically a picky price buyer in the global markets, but with U.S. corn prices holding strong at levels not seen in years, something has obviously changed.

And it’s a pretty simple explanation. China needs corn and wants to be first in line to get it.

Plus, this: The struggling Brazilian corn crop. Conditions for their second corn crop have been extremely dry, and there isn’t much relief in sight. Some in the industry think there could be 10 million tonnes of production lost in the next two weeks. With a U.S. corn crop starting the season with historic levels of drought in some areas, China isn’t waiting to see how the markets play out.

Worth noting: China expects to see their hog herd reach pre-African Swine Fever (ASF) levels by July, with slaughter rates back to pre-ASF levels by November. And those pigs gotta eat.

If the herd build-backs are true, don’t expect China’s Pac-Man strategy to go anywhere anytime soon.

Searching for that herbicide supply like:

The pandemic might be winding down, but its effects on the ag supply chain are still ramping up.

Herbicides and fungicides are the latest to face supply constraints due to pandemic production delays, shipping bottlenecks, and increased demand.

While the popular glyphosate and glufosinate herbicides are getting the most attention, several fungicides are facing shortages as well.

The backstory: Abrupt, emergency shutdowns in China at the beginning of the pandemic kicked off supply issues. Glufosinate and glyphosate, among other chemistries, are produced in China or have ingredient sources overseas.

And China is looking out for #1…China. This means American farmers are put last in line for the much-needed inputs. Not a great scenario with expanding acres and sky-high commodity prices fueling demand.

In some instances in the U.S., where producers didn’t prepay, RaboResearch notes that prices are up 50%.

Crunch time: In response to the glufosinate shortage, BASF noted they were even beginning to expedite shipping using air freight rather than traditional ocean-bound containers.

Where this goes: Some farmers may have to use unfamiliar alternatives to their preferred chemistry, including generics. And farmers may have to phone-a-friend, or several, to find supply before this all gets resolved. Experts are projecting issues to be sorted out by Q2 of 2022.

China Is Trying to Think Postive-ish

China pork producers are playing a never-ending game of Whack-a-Mole with African Swine Fever [ASF].

Three years into the war against the global swine virus, the Asian nation faces new cases in its own backyard and in neighboring countries.

Where things stand… Since the start of 2021, six new outbreaks have been reported in the key pork-producing regions of Sichuan and Hubei. The relatively small clusters of positive cases are being chalked up to a seasonality bump and new strains.

The silver lining: The seasonal bump shouldn’t have a meaningful impact on supply, and the new strains are less harmful, though still highly transmissible.

But China is definitely feeling the sting.

Domestic hog prices have plummeted 19% since the beginning of the year. And while the USDA expects 14% growth of the Chinese herd this year, these ASF speed bumps could knock those efforts off track.

And about those neighbors…

  • Malaysia’s 3,000 cases this year put them on China’s blacklist as no imports of pigs or boars are being accepted.
  • Vietnam is also getting the stink eye after 2,000 ASF-positive pigs were found.
  • Russia’s rough Q4 2020 of ASF madness is finally under control after +500K pigs were culled.

What’s ahead: With no commercial vaccine in sight and shakey market prices, it’s going to make for another interesting year for the China pork industry.

China Faces A Big AgTech Test

Rural revitalization is the new name of the game for China.

In the first policy announcement following the Lunar New Year Holiday, China’s agriculture minister announced agtech self-sufficiency as a top state issue.

The goal? Get 200 million mostly small-scale farms up to agtech speed to bolster food security.

With a growing population and rising consumption rates, China can’t afford a casual approach either. The country’s corn and soybean yields and pork and dairy efficiencies lag behind their global competitors.

Soundbite: We cannot afford to be complacent for even a moment, but instead must do everything possible to heighten (food) security.” noted Tang Renjian, Minister of Agriculture.

The country’s top companies – Alibaba, Pinduoduo, and others – are rising to the challenge. Breeding and cultivation sciences, AI, quantum computing, and computer chips are all on the technology docket to ramp up farm to fork traceability and competencies.

One real-time example: Apple Watch-style chicken bracelets (we’re serious). They may not send texts or respond to ‘Hey Siri,’ but they digitally track the birds’ steps for early disease detection. This cuts back on labor needs in the country’s hinterlands.

+ Worth noting: China seems set to green light GMOs, noting a need for sophisticated seeds. The government has laid the groundwork for the commercialization of new GMO corn and soybean hybrids.

It’s Baaack

Asia just can’t seem to shake the African Swine Fever.

After new strains of the virus popped up across China last month, now Hong Kong is facing a test. For the first time in two years, the independent region found ASF in its domestic herd. Authorities ordered 3,000 pigs to be culled.

Here we go again: The last ASF flare-up in 2019 was a fluke. 10,000 pigs imported from mainland China, the epicenter of the pork pandemic, tested positive for the virus and had to be culled.

Zoom out: Hong Kong isn’t alone. New, sporadic cases continue to resurface in other Asian countries. Indonesia, South Korea, and Cambodia are in the mix, attempting to tamper wild boars who are spreading the disease.

China Driving Demand for… Empty Containers

Seemingly nothing should shock us anymore, but trying to understand the current shipping container shortage is mind-boggling.

Ag exporters around the world are watching stockpiles grow as they struggle to find containers to get products moving.

The reason? China.

Faster pandemic recovery has led to increased manufacturing in the Asian nation. And Chinese exporters are paying a premium to get their hands on shipping containers to move their goods around the globe.

Those premiums have led to global shipping giants rejecting opportunities to deliver U.S. agricultural products so they can ship empty containers to be filled in China.

Worth repeating… U.S. ag commodities are literally missing the boat as shippers can make more money sending empty cargo bins back to China.

But it’s not just a problem in the United States. International grain sellers are struggling to secure container space. Left unchecked, some experts are concerned consumers could start seeing higher food prices as a result.

+ While we’re here: Remember that whole U.S.-China trade war thing? Well, Phase One didn’t entirely live up to expectations. The USDA reported that while China agreed to buy $36.5 billion worth of ag products in Phase One, only $28.75 billion was actually sold.

The China Pork Playbook

Go big or go home: the mantra of China’s top pig producer.

Muyuan Foods is building the largest single site hog farm in the world. After African Swine Fever [ASF] demolished China’s pig population and sent pork prices to double their previous record, Muyuan is banking on getting a slice of that profit pie.

And they’re in a position to win. While corporate pork companies felt the sting of ASF, they quickly recouped losses as prices spiked. Their counterparts – the small, family-owned herd – didn’t have that same outcome.

But innovation is the name of the game in order for Muyuan to make the moolah. The new farm is highly automated to increase efficiency. State-of-the-art thermal imaging cameras and air filtration systems are being installed to keep disease out.

The mega farm, by the numbers:
→ 21 buildings across the campus
→ 
84,000 sows, 10x a typical U.S. breeding farm
→ 
2.1 million pigs produced a year

China’s goal: Reduce dependence on the global pork market. U.S. producers know this story all too well. Thanks in part to China plus others, U.S. pork exports account for 29.2% of production and were up 15% to $6.33 billion through the first ten months of the year.

How this ends: It will be no small feat for Muyuan and others to keep ASF out of these high-density production sites. With no vaccine or cure available for the deadly disease, China pork producers are truly betting the farm on this pork herd rebuild.